The Viva Air Group has expanded much more slowly than initially anticipated since launching VivaColombia in 2012. VivaColombia has shrunk its international network to only four routes, and has also been consolidating its domestic operation, suspending several routes in 2017.
However, VivaColombia is still expanding by adding frequencies to existing routes. The group also launched a Peruvian affiliate in May-2017, providing the first LCC option in Peru's domestic market.
Viva Air Peru tries to drive new phase of growth for Peru's domestic market
The Viva Air Group is confident there is still room for stimulation, particularly as Peru's economy and middle class population grow. Mr Shaw expects Viva Air Peru will drive 40% growth in the overall Peruvian market.
Mr Shaw said Viva Air Peru aims to carry 700,000 passengers in its first year, which would give it approximately a 5% share of the Peruvian domestic market. He pointed out that competitors had reduced fares by up to 70% following Viva Air Peru's launch.
"We see Peru as Colombia was five years ago, now the market has grown and the passengers have benefited the most", Mr Shaw told CAPA. "As more LCCs seek to establish in the region, it brings more opportunities to Latin Americans and democratizing airfares in the region. This model is just begging to be here."
Peru's domestic market should be large enough to support an LCC fleet of at least 10 aircraft. With its initial fleet of two aircraft, Viva Air Peru is currently only capturing approximately a 3% share of Peru's domestic market. Viva Air Peru also intends to compete on regional international routes in a later phase.
See related report: The Viva Group settles on Peru amid changing competitive dynamics in Latin America
Viva remains bullish, despite some challenges
In the first five months of 2017 VivaColombia's international passenger traffic dropped 20%, to 107,000. Its domestic traffic was up 22% to almost 1.5 million, driving an overall growth rate of 17%.
VivaColombia aims to achieve nearly 50% traffic growth for the full year in 2017, to 5 million passengers. While it could struggle to meet its target, VivaColombia continues to grow faster than the overall Colombian market and the restructuring of its network should improve its profitability.
The Viva Air Group is clearly bullish on its outlook - in Colombia, Peru and potential new markets - and this confidence in the overall Latin American market drove the decision to order 50 A320s.
The larger fleet should give it better economies of scale compared to the current 11 aircraft, resulting in lower unit costs. Achieving and maintaining a significant cost advantage over its larger, more established full service competitors will be critical if the group is to succeed at spreading its wings throughout Latin America.